Homeowners And Home Buyers : What The Fannie Mae and Freddie Mac Story Means To You

The Fannie Mae and Freddie Mac news stories are everywhere today, including the front pages of most newspaper dailies around the county. Therefore, I'm not going to rehash the story for you.
Instead, let's tackle the news about Fannie Mae and Freddie Mac from a consumer perspective, highlighting a few of the issues as they relate to everyday homeowners and home buyers like me and you.
12 discussion points follow, written in a plain English-style that won't require interpretation:
News and opinion often blend on TV: The hardest part about watching business television is that it's tough to distinguish between fact and opinion, especially when it's coming from the mouths of "experts". A good rule of thumb -- if the expert is talking about something that hasn't happened yet, it's opinion.
Fannie Mae and Freddie Mac aren't too big to fail: But, Fannie Mae and Freddie Mac are too important to fail. This is an important distinction and it's the reason why the Federal Reserve and the U.S. treasury issued statements to bolster the GSE's standing Sunday.
Beware of colorful metaphors: TV producers and newspaper editors love good metaphors because they generate emotional responses. When we hear phrases like "Fannie Mae is running on fumes", it makes us scared. Even if we don't know what "Fannie Mae" is or what it means for a GSE to be "running on fumes".
Same goes for the word "bailout": Mortgage-related news is rife with negative connotation and has been since sub-prime became a buzzword circa 2005. The reality, however, is that since 2005, mortgage rates have fallen in some pockets, even as mortgage guidelines have tightened. For the well-qualified homebuyer, mortgage news has been anything but negative.
Fannie and Freddie are mortgage insurers, not mortgage lenders: This means that if you already have a home loan, any problems you face because of the GSEs will be indirect only (i.e. broader economic recession). You will still pay your mortgage as agreed.
The government works weekends: Just because the Fed and the Treasury issued statements on a Sunday doesn't mean that the issues with Fannie and Freddie are ones of crisis. The reason the statements were issued on Sunday is because Sunday in Cincinnati is Monday in Beijing and the international credit markets are already open.
Fannie and Freddie probably saw this coming months ago: Because loan-level pricing adjustments made Fannie and Freddie's mortgages too expensive, Americans with on-the-fence credit profiles have run to FHA-insured mortgages instead. FHA responded with LLPAs of its own, ironically, in effect as of today.
Mortgage rates should benefit: The government's support for Fannie Mae and Freddie Mac is an explicit guarantee of debt and elevates the GSE's debt quality to near-Treasury levels. In other words, the risk of buying Fannie or Freddie-issued debt is dramatically lower and yields should fall to reflect it.
The biggest reason why Fannie and Freddie matter to you: When your local bank branch lends you money for a mortgage, in theory, it is lending you deposits from its customer base. Then, the bank sells the loan to Fannie or Freddie for its value plus a fee. The "value" replaces the deposit money and the fee is a profit. If Fannie and Freddie were to stop buying loans, banks have to get a lot more picky about the people they lend to, or would have to stop lending entirely. This is why Fannie and Freddie are too important to fail.
98.8 percent of Fannie mortgages are paid on-time: Let's remember that the typical Fannie Mae borrower is well-capitalized, has sufficient home equity, and a strong credit score. We're not talking -- and will never be talking -- sub-prime loan quality.
The last time Fannie and Freddie were pinched like this, they raised fees: Different from loan officer fees, mandatory "delivery charges" pumped up the interest rates available to everyday Americans. For some, the charges were cost-prohobitive, amounting to 2 percent or more. It would be reasonable to expect additional delivery charges later this year.
Monday's evidence that the news isn't so dire: Today, Freddie Mac sold $3 billion of debt and it was well-bid by the markets. This means that demand for the debt was higher-than-expected and that markets still have confidence in Freddie Mac.
The world is unpredictable and so are mortgage rates: Last Monday, few people predicted what had come to pass by Friday, and then again by this morning. Unexpected events -- or lack of expectation at all -- are the biggest reason why mortgage rates have been so volatile this year. If you have the chance to lock in a new mortgage rate, do it. You can always remortgage to a lower rate sometime in the future.